Toyota Finance Uses Advanced Analytics To Improve Sales And Profits

Customer analytics at a retail bank look simple compared to the statistical analysis at an auto finance company. While a bank is just focused on money, Toyota Finance wants to move metal — sell cars and trucks — in the words of Chelsey Kate Meise, the manager of credit risk analytics for Southeast Toyota Finance.

Toyota dealershipPhoto by Tom Groenfeldt

She develops models to examine individual’s credit risk, but that’s only part of what the company’s analytics team does. They look at origination, the loan portfolio, losses, marketing, remarketing (selling cars that come off lease), securitization, insurance and even how customers click through the company’s web site to see where they have problems. (It’s a lot less expensive to solve their problems online than through a call center.)

It’s a challenging environment. As Bloomberg recently reported, more auto loans are going bad, interest rates are rising and financial institutions are becoming more selective in their lending for cars. The combination could mean 175,000 fewer sales this year, according to the National Automobile Dealers Association. Meise and her team would prefer that those cuts don’t come from Toyota’s numbers.

“We want to get as many contracts as we can while mitigating risk.”

Using SAS tools for data analysis, the analytics department takes its skills to different departments within the company.

“People think they are doing things the best way they can be done because they have been doing it that way for a lifetime.” Data can show that isn’t always the case. Meise said the group had a big win in re-marketing — selling cars that have come off leases.

“We were able to show that rather than sending them to the closest auction, they could get better prices by moving cars to Florida for sale in the winter,” she said.

Toyota TrucksPhoto by Tom Groenfeldt

With advanced degrees in math and an ease with statistical analysis that mere mortals can only regard with a mix of fear and awe, the analytical team members have to be careful to talk about their conclusions in plain English rather than bombarding other departments with equation-laden PowerPoints.

“I discuss statistics in ways they can understand; I leave out the technical and mathematical jargon,” said Meise. “I assure them I’m not trying to take their jobs — I’m trying to help them do it better so they will get bigger bonuses.” That’s language everyone in business can understand.

She also works with actuaries on GAP analysis, when the value of the vehicle is less than the loan a person is applying for, something that can be covered with insurance.

“We are using SAS, and the actuaries are using Excel. They can’t forecast the value of the vehicle with Excel, while with SAS we can look at millions of vehicles.”

She's a big fan of SAS and its user support. In addition to extensive online resources, "I can call anytime and ask pretty complex questions and get PhD level statisticians to help me work through my issues," she said.

Because Southeast Toyota Finance doesn’t have deposits to fund its loans, its rates are marginally higher than a bank’s.

“But we will put money out to try to get the sale, move the metal.”

To price its leases, the company uses residual risk modeling to predict the value of a vehicle over the life of a lease. That requires looking at the supply and demand across each vehicle level — Toyota sells everything from Corollas at $18,500 to Land Cruisers selling for over $85,000. So the analysts look at economic variables such as GDP and unemployment across each vehicle model. They also help to figure out pricing incentives. With low gas prices, trucks are selling well, but the dealers also have to move sedans, so the company has to determine what incentives it should offer for different product lines.

Hiring data scientists in the southeast is a challenge, Meise said, and the analytics team is looking for people with masters degrees or above. She expects that the use of analytics will only grow.

“Instead of people making decisions based on feel, the decisions will be based on data. The whole company is behind our group; they are supporting us to sell more Toyotas.”

Meise herself drives a half-ton Tundra pickup which will tow a 7,000-pound Airstream trailer when she and her partner head west on vacation this summer, she said.